I recently had the pleasure of listening to Dr. Vikram Shah of Shalby Hospitals at the IKS Healthcare conclave and I was very impressed. Dr. Vikram Shah is a pioneering orthopaedic surgeon who has performed a very large number of hip replacement surgeries.
He is a first generation entrepreneur - a doctor who started from scratch, and has now built up an orthopaedic empire which straddles the entire country. He is the kind of person who needs to be invited to start-up conferences to tell his story, but the problem is he's very shy and unassuming. He is not interested in grabbing the spotlight, unlike lots of other founders, because he's completely bootstrapped and has done this all by himself. He doesn't need to preen and posture in front of investors because he's not hungry for their money.
What's remarkable is that even though he's extremely profitable (and has been consistently so), his major focus has always been on providing excellent patient care. According to him, because he puts his patients first, the profits have automatically followed. This is such a pleasant contrast from health care ventures funded by VC money, where the entrepreneur and investor first decide how and where the money is going to be made, and then think about creating a business plan in order to get that money.
Because he now has a global reputation for being able to provide high quality class care consistently, frugally and cost effectively, patients flock to him from all over the world. He has been able to groom many young orthopaedic surgeons who are very happy to work under him because they admire his work ethic. He mentors them and they look up to him as a respected father figure, because he treats them with love and respect. This is a key ingredient of his success. He trains them well, because he has so much patient volume, and then provides them with enough clinical autonomy and freedom, so that they can do what they love - taking care of their patients in the Operation Theatre. They don't have to worry about administrative hassles, and have high self-esteem, because they can practise high quality medicine. They command professional prestige, because they have so much experience and clinical expertise. They are respected at Shalby, because it is a doctor-first hospital. Unlike other corporate hospitals, they don't have to worry that they will be bossed around by a freshly minted non-clinical MBA administrator, who doesn't understand what it means to put patients first.
He's growing organically, and now that his systems are in place, he will continue to do so. Because he's a focused factory and extremely profitable, he's going to find it much easier to raise investor money if he wants to grow even more rapidly. He's now in the enviable position where investors come to him and say, “Please take our money, because we want to help you to grow" because they want to share in his profits! Unlike most other founders, he doesn't have to pitch to investors, and this is a far better position for an entrepreneur to be in, because it allows him to remain honest to his mission and vision.
Because he is a clinician, he has a very good sense of what equipment to invest in. He will not waste money on frills which just add to the patient's cost, but don't improve clinical outcomes. As he says, a 1.5 tesla MRI machine is a workhorse for the orthopaedic surgeon, and answers 99% of the doctor's questions. There's no point in splurging on the newest “state of the art" 7 Tesla machines! These machines sound a lot more impressive to an ignorant patient, but are purely great advertising tools for the hospital. A non-clinical CEO, who doesn't understand medicine, is quite happy to buy the "newest and latest", because he doesn't know any better, and medical device manufacturers are always happy to sell the newest generation machines, even though they don't affect clinical outcomes. What they do affect is the cost to the patient, because 7-Tesla machines are so disproportionately expensive. Patients end up being burdened with an out sized bill, without reaping a proportionate benefit.
Because he's a doctor, he has lots of clinical common sense, and he doesn't get carried away by the latest toys or technology. It was very inspiring to hear his heart-warming story!
Angel investing has become very trendy in India. The Times of India publishes a page on the start-up ecosystem every week, and the media never tires of praising the unicorns that have created fabulous riches for their founders and investors.
This is why so many high net worth individuals want to become angels. This is a healthy trend, because start-ups have an important role to play in the economy. Unless new companies keep on starting up, we're not going to be able to grow the economy or create more jobs, so this is all for the best.
What worries me is that lots of angels start investing in start-ups for all the wrong reasons. They are deluded into believing that it's a great way of becoming rich quick. The bitter truth is that most start-ups will fail, and rather than multiply your wealth, you are much more likely to end up losing all of it.
They also feel angel investing is very exciting, because they watch Shark Tank events on TV. They imagine that it's very cool to be able to pick the right founder and sign a cheque on the spot to kick start a company which is destined for greatness. However, Shark Tank events are created for entertainment, and not for their educational value. If that's the model that you plan to follow you're going to end up burning your fingers because there is no royal road to riches. You need to take your time and be systematic about doing your due diligence.
While the coolness factor of calling yourself an angel can be very seductive, you also need to remember that engaging with the start-up after signing the cheque can be a lot of hard work. Usually, there's very little communication from the founder, once he has money in the bank account. He feels the investor's job is done, and many founders don't take kindly to inquiries by investors, because they are worried that the funders may start meddling in their business. They'd rather be left alone to do what they feel is right for the company. Many investors feel cheated by this lack of feedback because they conclude that the founder no longer cares about them, now that he has got their money.
Some investors naively believe that all they need to do is identify a clever lead angel, and then piggyback on the deals he is leading. They are happy to let him do all the heavy lifting, and want to ride passively on his tailcoats to become rich without doing any work. The truth is that you can't become rich on borrowed wisdom. This is not a good tactic for selecting start-ups, because a lot of these successful leads also have lots of failures, which you unfortunately don't hear about.
This is why most outsiders have a very distorted view of the reality of the start-up ecosystem. They want to "dabble" in angel investing for the thrill it gives them, but this is the worst reason to do so - your odds of identifying a winner are worse than a gambler playing roulette.
Now I am not saying that angel investing is a form of charity, but you should invest only if you are willing to lose this money without losing any sleep over the loss.
The problem is that anyone who can sign a cheque today can become an angel - there are no examinations you need to pass in order to qualify as an investor! This can backfire, and immature angel investors can cause harm - both to their bank balances, as well as the entrepreneur's peace of mind.
Angels come in all shapes and sizes, because every angel investor's motivation is different, and that's fine - no two angels are alike. Thus, some angel investors see this as an investment in themselves, because it's a great way to network - you get the opportunity to meet other investors in your portfolio companies, many of whom have deep pockets.
The point is that you do need to be self-aware before you put money into a start-up. Having money in the bank is a necessary condition for being an angel investor, but not a sufficient one
Social impact investments, which fund for-profit social enterprises, are still poorly understood. Most people still can't figure out how a company can be both profitable and have a social impact at the same time! Isn't this an oxymoron? The traditional belief has been that if you want to create social impact, the best means of doing good is either charity or philanthropy. Aren't social services are profit diametrically opposed to each other? Their belief is that if you try to serve two masters you'll end up doing a bad job at both.
The reality is that social impact enterprises can be far more profitable than a regular commercial enterprise. This is true for many reasons.
For one, when you're focusing on solving a social problem, you have a well-defined target at hand. This means that unlike many commercial entrepreneurs, you don't go looking for a market for your pet technological solution. The reason most start-ups fail is that they fall in love with their product, and then go looking for customers who will pay to use it. Social entrepreneurs, on the other hand, identity the social problem they want to solve first with laser sharp focus, and then look for viable solutions which they can scale up. Their product-market fit is likely to be much better because of this perspective.
What makes them unique is that their solutions have to be frugal, sustainable, and scalable. This is the big problem with depending upon charity and philanthropy to solve social problems. When you give charity, you make people dependent on you. When the charity ends, the poor beneficiaries stop getting the goodies which they have become dependent on. They often end up in a much worse situation than they were when they were left to their own devices. This is why foreign aid has managed to accomplish so little over so many years, and why it now has such a bad reputation.
Social enterprises have a huge edge because there's very little competition for these consumers at the bottom of the pyramid. Most companies don't think that it's possible to make any profit from them, as a result of which these start-ups can dominate because they find themselves in pretty much a virtual monopoly situation. If you are capable of thinking up a clever and creative solution to their problem, you have an unassailable competitive advantage, because there are no incumbents you need to battle to win market share. It is this which makes social impact entrepreneurs so unusual, and this is why I'm so willing to back them. These founders have a strong sense of purpose, because they are “mission driven”. They are not distracted by competition, valuation, praise or what others think. They do not hanker after publicity and have a single-minded focus. Everyone in their company is able to answer the question, “Why am I doing this?”
As my friend Michael Koss says, " Frugal social businesses that solve real problems can create new, market appropriate " sticky " solutions that allow them to become self sustaining, so that they have the luxury of seeking funding only when they want grow even faster."
When investors offer them financial capital, they can leverage the fact that they are tackling socially important problems. The fact that they're addressing a cause which is worth tackling gives them a head start. Consumers have a soft corner for social enterprises, and are more willing to buy their products, and even pay a premium for them. Equally importantly, they are fortunate because they can attract high quality human capital. The employees in these companies are a different breed, because they go to work for a cause. They are populated by people who are passionate about the cause. Not only do they work much harder, they are also much more loyal, because they are committed, and will not leave just because another company pays them a little more. This kind of loyalty is priceless.
This is why social impact investments have become such an attractive alternative asset class for the millennials, who want to see their money being put to good use. Doing well by doing good is a very powerful mantra for success!
The mental image most of us have of a successful entrepreneur is Steve Jobs - an eccentric who was deeply passionate about what he cared about; and extremely idiosyncratic. He was able to do things which everyone else thought was impossible, and we have started believing that these are the mystical ingredients which every founder needs.
It's true that talking to charismatic founders can give you a high. They're very charming and persuasive. They are great salesmen, and can get you buy to into their dream.
However, over time, I've actually come to respect the thoughtful, mature founder a lot more. I think charisma is all very good, but it's neither necessary nor sufficient to running a successful start-up (my definition of a successful company is one which continues to grow profitably).
We lose sight of that fact that Steve Jobs surrounded himself with lots of people who were capable of implementing his dreams because they were far more mature than he was. One of the reasons for his success was that he was insightful enough to understand what his limitations were. Rather than trying to be a one man show, he surrounded himself with team members who had complementary skill sets, so that together they could do what neither of them could accomplish alone.
A mature founder is someone who can withstand a funding winter without losing his cool. He can keep his team together by helping them to focus on what's important, so that they don't lose faith while riding the emotional ups and downs which characterize a start-up's rocky journey. He needs to be remain grounded, so that he does not get carried away by unrealistic dreams.
Typically, a lot of the founders who grab all the media attention are great only at selling the sizzle. Their major focus is on valuation, and they compete to see how much money they can raise. They get a high by winning competitions; giving keynote speeches; and being featured in the press. These are the strokes which their ego requires.
A mature founder is not flashy, and he doesn't care much about publicity, because he is too busy building his company, one brick at a time. He would rather getting his hands dirty leading from the front, rather than bask in media attention. He understands the difference between good growth and bad growth, so that he's not focusing on chasing revenue for the sake of inflating his top line. His focus is not on monetisation, because he is mature enough to understand that the money will follow as long as he focuses on delighting his customers. He doesn't get carried away by what other founders are doing; and refuses to dance to the VC's tune of loss-making growth. He has a clear set of priorities, and he's mature enough to stick to them through good times as well as bad, because he wants to build a company which will last, not a house of cards which will collapse once funding dries up.
Because he's reliable and trustworthy, he earns the respect of everyone in the ecosystem. His investors look up to him, because they understand that he has a long term perspective and will not get carried away by the flavour of the month. His team members admire him, because they know that he will stand up for them through thick and thin. His customers trust his word, because he's not a manic depressive who has good days and bad days. He understands the importance of following up on a promise, and is willing to get his hands dirty in order to make sure that the company succeeds.
These are the dull and boring characteristics which I look for in a founder these days, rather than wait for someone to blow me away. While it's nice to get swept off your feet by a passionate founder, sometimes it's better to admire these charismatic personalities from afar. While it's not very sexy and exciting to do the daily grind, their chances of succeeding are far better, because they create a robust and healthy company culture by setting a great example for everyone.
One of my founders just called me. He was feeling extremely guilty and ashamed about the fact that he was going to have to shut his start-up down, because he couldn't make ends meet. He had tried every option he could think of, but everything had failed. He was embarrassed; and was scared that I would berate him. I was his largest angel investor, and he felt that he had let me down by burning through all the money, and having nothing to show for it.
I tried to offer him a balanced perspective. “As an angel investor, I understand that most start-ups will fail - after all, this is the fate of most of them, so you don't need to beat up on yourself. As an angel it's impossible to identify which start-up will succeed, which is why I assume they are all going to fail when we invest in them. Now this doesn't mean that I like throwing away my money. It's just that I need to be realistic, so why would I get upset because your particular start-up has failed. Logically, no matter how hopeful and excited I am when I sign the cheque, there is no logical reason to expect a particular start-up to be the exception (though I do agree that hope springs eternal in the human breast, and every angel feels that they have identified a winner when they sign their first cheque)."
What upsets me is not the fact that the start-up failed, but that the founder refused to communicate with his investors even though he could see his start-up was spiralling downwards. Rather than fulfill their fiduciary duty of keeping their funders in the loop, many founders clam up and enter prolonged periods of radio silence, during which the investors have no clue what is happening. The sanguine ones naively believe that " no news is good news", and trust that all is well, which is why they get a rude shock then the founder tells them he is going to have to shut down in a few weeks.
Investors, like all of us, hate surprises - especially unpleasant one! They have no idea what you have been trying; why you are failing; what you are trying out as your Plan B; and why nothing seems to be working. Investors will forgive failure, but they will not forgive failure to communicate. Not only is this a sign of disrespect, it also means you have betrayed their trust by hiding the dark truth from them, and this is not acceptable.
It is specially when things aren't going well that you need to be radically transparent and honest. Interestingly, this is the time when a good angel can be worth his weight in gold. It is when you are at your wit's end that you need an empathetic sounding board - someone who can help you think through your options objectively and thoughtfully.
The problem is that most good entrepreneurs feel guilty when they find they are failing. They try to hide this bitter reality - sometimes, even from themselves. They beat up on themselves, because they feel they've let everyone down - their employees; their customers; their family; themselves; and their investors. There's no need for me to add to their angst - this is hard enough to manage as it is. And in any case, I'm a big boy. I understand that angel investments are a risky investment class, and lots of them will fail.
I don't think he had any reason to fear that I would give him a whiplashing. I am okay with forgiving failure - after all, I have failed many times in my own life. However, I am not okay with his trying to hide the truth.
I counselled him - You are young, and the end of your company doesn't spell the end of your life! Even if the outcome of your start-up was unhappy, as you worked hard and did your best, there's nothing to be ashamed of. As we all know, shit happens - life is not always fair. Sometimes you were just unlucky; or in the wrong place at the wrong time, and there's nothing much anyone can do about this, so you need to accept your lesson from the school of hard knocks, and move on, rather than wallow in self-pity. Having to shut down your start-up can be emotionally devastating, because you feel like you've been forced to kill your first-born. It takes time to recover, but if you learn to be kind to yourself, you will bounce back quicker.
It's true that every entrepreneur (and the angel investors who fund him) is sure that he will succeed when he starts his company, but unfortunately, not everyone's dreams come to fruition. This is one of the most important lessons life can teach you, and you're lucky that you've learned this so early thanks to your having the courage to start off as an entrepreneur. Give yourself some time to allow the wounds to heal, but please don't become a recluse.
Make sure you comply with all the relevant government rules and regulations for shutting down a company. Don't leave the paperwork incomplete - this may come back to haunt you later on.
I offered some suggestions which may help him to snap out of his despair. It's useful to keep a detailed journal of your journey - this will allow you to ventilate, and spilling your guts in the privacy of your personal diary can be very therapeutic. It will allow healing to occur, so that you can move on. Otherwise, you may find yourself spending sleepless nights in playing the woulda, coulda, shoulda game, and that doesn't help anyone. You need to stop living in the past, and move on into the future.
It's helpful to share your lessons with other entrepreneurs. You have experienced firsthand how painful failure can be, and if they can learn from your lessons, may be their chances of failing will go down.
I reminded him that as a failed entrepreneur, his value in the start-up world has increased a lot. The truth is that your chances of becoming a successful entrepreneur increase a lot after you've failed once. Not only do you have your domain expertise, you have also acquired valuable battle scars which only life can teach you - you can never get this from any MBA course or textbook! The fact that you've battled failure and managed to bounce back says a lot about your emotional resilience and your mental strength.
Don't think of your failure as a weakness or as a blot - please don't try to bury it, hide it or cover it up. In fact, you should be open about your failure, and wear it as a badge of honour. When you fail, please don't try to pass the buck or offer spurious justifications. For heaven's sake, don't blame anyone else. Behave like a mature adult and accept responsibility for the failure gracefully, if you want to keep your self-respect.
The next time you pitch to an investor, emphasise that this failure has also taught you what not to do. The reality is that the number of reasons why a company fails are fairly limited. When you've been the CEO of a failing company, you've seen the reasons for the failure play out in front of your eyes, so that with hindsight wisdom, you are now aware of what you could have done differently to salvage the situation.
Please accept full responsibility for your failure. Be honest about what happened; why you failed; what you learned from your failure; and what you are going to do differently this time. You don't need to change your domain, because that's what you are an expert on, and you can make better use of your hard earned lessons in the same field. In fact, if you keep the current investors in your failed start-up in the loop, they will continue to trust you, and may be quite happy to fund your next company as well!
Unfortunately, you're not going to be able to turn the clock back, but you can make good use of those hard-earned lessons to make sure that you don't repeat the same mistakes in your next start-up. As compared to someone who's never run a company before, you now have a phenomenal head start, and are much more likely to do a much better job the next time around.
Finally, please remember the Serenity Prayer. God grant me the serenity to accept the things I cannot change; the courage to change the things I can; and the wisdom to know the difference. Failure is never final, unless you decide it is.
Last week we wrote about how to give product demos that sell.
To quickly summarize, you should:
1. Know your audience
2. Focus on the benefits and not the features
3. Use storytelling to showcase your product
This week, we expand on how to know your audience before giving a demo that wins them over
As a B2B SaaS founder or salesperson, one of the most critical things you need to do before giving a demo is to understand your audience. Knowing your audience helps you tailor your presentation to their needs and concerns, making it more likely that they will be interested in your product. Here are three steps to follow to understand your audience before giving a demo:
Before the demo, research your audience to understand their business and their pain points. This can help you tailor your presentation to their specific needs. For example, if your audience is in the healthcare industry, you can highlight how your product can help them manage patient data more efficiently.
Example: Let's say you're selling marketing automation software to a B2B SaaS company. Your prospect is the Marketing Manager, and you know that their main pain point is lead generation. You can research the company's website, social media pages, and marketing campaigns to get a better understanding of its current lead-generation strategy. You can also research the company's industry to understand the trends and challenges they face.
Tip or Trick: Use a tool like SimilarWeb to understand the traffic sources and engagement metrics of your prospect's website. This can help you understand the effectiveness of their current lead generation strategy and tailor your presentation accordingly.
If possible, talk to your audience before the demo to understand their needs and concerns. This can be done through phone calls, emails, or surveys. For example, you can send a survey asking them to rank their top challenges related to the product you are selling.
Example: Let's say you're selling customer service software to a B2B SaaS company. Your prospect is the Customer Service Manager, and you know that their main pain point is reducing response time. You can schedule a call with the Customer Service Manager to understand their current workflow and the challenges they face in responding to customer inquiries.
Tip or Trick: Ask open-ended questions during the call to encourage the Customer Service Manager to share their pain points and concerns. This can help you get a better understanding of their needs and tailor your presentation accordingly. Use these questions.
If you have existing data on your audience, analyze it to understand their behaviour and preferences. This can help you understand what motivates them and what they are looking for in a product. For example, if you have data that shows your audience prefers user-friendly products, you can highlight the usability of your product during the demo.
Example: Let's say you're selling a project management tool to a B2B SaaS company. Your prospect is the Project Manager, and you know that their main pain point is staying on top of project timelines. You can analyze data from the company's previous projects to understand the common causes of delays and how the current workflow can be improved.
Tip or Trick: Use a tool like Trello to create a visual representation of the project workflow. This can help you identify bottlenecks and areas where your tool can improve efficiency.
While understanding your audience is essential, there are also some steps to avoid. Here are three steps to avoid when understanding your audience:
Avoid making assumptions about your audience. Instead, rely on data and research to understand their needs and concerns. For example, don't assume that your audience prefers a certain feature just because a similar audience did in the past.
Example: Let's say you're selling cybersecurity software to a B2B SaaS company. You assume that because the company is in the tech industry, they are already familiar with cybersecurity threats and concerns. However, you later find out that the company is not very familiar with cybersecurity and needs a more basic explanation of the threats and risks.
Tip or Trick: Always validate your assumptions by asking questions and gathering more information. Don't assume that your audience has the same level of knowledge or experience as you do. Use these questions.
If you get feedback from your audience, don't ignore it. Use it to improve your product and tailor your presentation. For example, if your audience provides feedback that your product is too expensive, address this concern during the demo.
Example: Let's say you're selling sales tracking software to a B2B SaaS company. During a call with the Sales Manager, they provide feedback that the current dashboard is too cluttered and confusing. However, you don't make any changes to the dashboard and present it as is during the demo.
Tip or Trick: Take feedback seriously and use it to improve your product and presentation. By addressing your prospect's concerns, you can build trust and increase the chances of closing the sale.
Avoid overgeneralizing your audience. While it's helpful to understand their general needs and concerns, remember that each customer is unique. Use the data you have to understand their individual needs and preferences.
Example: Let's say you're selling HR management software to a B2B SaaS company. You assume that all HR managers have the same pain points and needs, regardless of the company size or industry. However, you later find out that the HR Manager is looking for a more customized solution that can cater to their unique needs.
Tip or Trick: Use the data you have to understand your prospect's specific needs and pain points. Don't overgeneralize or assume that your product can address all their needs without customization.
Even if you follow the steps above, there are still some common mistakes you can make when understanding your audience. Here are three common mistakes and how to rectify them:
Understanding your audience's decision-making process is critical. If you don't know how they make decisions, you may not be able to address their concerns effectively. To rectify this, ask your audience about their decision-making process and incorporate this information into your presentation.
While it's essential to understand your audience's needs, don't focus too much on one aspect of your product. Instead, make sure you cover all of the important features and benefits of your product during the demo.
If you make claims about your product during the demo, make sure you back them up with evidence. This can be in the form of case studies, testimonials, or data. Providing evidence can help build trust with your audience and make them more likely to buy your product.
In conclusion, understanding your audience is critical for giving a successful demo. By following the steps above and avoiding common mistakes, you can tailor your presentation to your audience's needs and concerns. Use this post as a guide to ensure that you know your audience inside-out before giving your next demo.
As angel investors, when founders reach out to us, we try to be helpful, because we think that's part of our role in the start-up ecosystem. We try to provide them with useful feedback, so that even if we are not the right investors for them, we hope that interacting with us will help them to improve their chances of polishing their pitch and finding another investor.
This sometimes backfires. We say No politely, but when the founder keeps on asking for advice or guidance, this can be a little frustrating. My most important asset is my time. It's the one irreplaceable resource which I try to conserve, and I need to make sure that I deploy it effectively. I am a full-time practicing doctor, and my patients come first, which is why I try to provide mentorship only to those companies whom we've invested in. I try to be focussed, because this is where my interactions are likely to have the biggest impact. I need to think of a return on investment on my time, just as I think of a return on investment on my money.
The problem is that a lot of founders don't understand this. The one thing most start-up founders don't have a shortage of, is time. When they do find someone who replies to them, they think that's a marker of potential interest, and they try to nurture that relationship. The hope is that at some point I will perhaps write a cheque, which is why they continue seeking coaching. Now, unfortunately, I'm not a full-time investor, which means I need to be frugal with the way I allot my time. While I would love to be able to mentor tons of people, the fact of the matter is that I need to be picky and choosy.
I don't want to be rude when saying no, but I think founders also need to understand that investors value their time. We try to guard it jealously, because it's our most valuable resource. The value we add is not just the money which we invest in a company - it's the hand-holding we provide when they run into a rough patch, and this means we need to lavish time and energy on it.
As a founder, when an investor says No, accept this gracefully, say thanks, and then move on. Try to learn from the refusal, so you can do a better job with the next investor you pitch to. If you want, you can ask for permission to send regular updates, and most investors will agree to this, provided you don't expect them to respond.
However, don't keep on pestering the founder, because that sours the relationship. Not only does it irritate the person you're pestering, it also wastes your energy. You could deploy this better by trying to find another investor who understands what you are doing, and is happy to back you. The good news is that there are lots of investors in the ecosystem today, but it can take time to find the one who is right for you. Every time you get a refusal, you get a chance to improve, which means you are also getting closer to a Yes - and you only need one Yes to make up for lots of Nos!
Lots of entrepreneurs reach out to me because they want to raise funds, and I am happy to interview them. When they pitch, they spend a lot of time talking about their market; their product; why they think they will succeed; and why I should fund them.
While all these are important, the one question I ask all of them is, “Which book are you reading right now?"
Many entrepreneurs are surprised by this query. What does this have to do with their ability to found a successful company? Why should this influence my decision to fund them?
A surprisingly common (and disappointing) answer is, "Oh, I have been too busy to read a book for a long time."
I think this is a red flag, because I believe every entrepreneur needs to be a learning machine - you have to be flexible, agile and nimble, so you can respond to changing circumstances. The only way to do this is to be curious and humble, and be willing keep an open mind so you can absorb wisdom.
Reading is the best way to be able to learn a lot. You can learn from history; biographies; and first person accounts of successful founders. You need to keep on top of what is happening - not just in your domain, but in other industries, and in other parts of the world as well. As a CEO you will need to learn a lot of stuff on the job - how to manage employees; how to write a business plan; how to negotiate with vendors; how to sell to customers; and how to find the emotional resilience to deal with the daily ups and downs of a start-up. These are the bread and butter problems which will confront you daily, and unless you read, how are you ever going to be able to do all of this?
As the CEO, you are the chief everything officer, and you need to learn this stuff, even if you don't need it right now. The most cost effective way of doing this is by being an avid reader. Reading provides the best ROI on learning - and it sets up a positive virtuous cycle. The more you read, the faster you will learn, and the sharper your mental models will become.
Books are inexpensive, and thanks to Amazon, everyone has access to pretty much any book. I love the fact that they make learning so democratic, and think of them as being a great equaliser. You don't need to attend IIT or MIT if you want to read a textbook - you can absorb the information it offers on your own! A well-written book can form the core of your knowledgebase, and you can then build on it using supplementary materials such as podcasts, videos and online courses.
Yes, there are exceptions to this rule. I know successful founders like Branson have a reading disability, but they have been able to use other strategies to compensate for this shortcoming. If you don't have a disability, then what's your excuse for not being a voracious reader?
My final question is - Which book would you recommend I read so I can understand more about your field? This way, I get to learn a lot too!
Investors know that trying to pick the right start-up to fund is a hit and miss affair. We do a lot of due diligence and analysis, but the truth is that it's usually a gamble because it's impossible to predict which one will succeed, and which one won't. After all, at such an early stage, there are very few metrics one can analyse, so we are forced to go by our gut feel.
This is why the rule of thumb is that you should back the founder - which is why the bet is always on the jockey and not the horse. This is why we try to assess the founder's charisma. Is he capable of selling his dream? Attracting the right team? Does he have the X Factor which blows you away?
That's why we pay so much importance to how passionate the founder is. This is key, because running a start-up can easily consume all your energies. It need to be the most important thing in your life if you want to be able to pull it off successfully, which is why single-minded focus and passion is so important.
However, as with all things, too much passion can backfire too. The trouble with someone who's too passionate about his solution is that he may get obsessed with it. He may start believing that his product is the only correct answer for the particular problem that he's addressing. He has spent years researching the market, and cannot understand why other people don't get it - why they don't understand his vision. He is frustrated when customers aren't willing to buy his product. How can they be happy to muddle along with whatever suboptimal jerry-rigged solution they have been using for many years, when his is so much better? Why aren't investors willing to fund him? Can't they see how superior his product is as compared to the competition? He gets trapped in his own thinking, and his passion becomes a prison which affects his ability to be able to think clearly. He can no longer understand the way the rest of the world thinks because he is no longer on the same page as them.
Now, he may still get lucky (I'm using the word very deliberately, because a lot of start-up success depends upon being in the right place at the right time). He may be able to get someone to buy into his vision and succeed, even though the odds are stacked against him. This is the reason why people like Steve Jobs and Elon Musk are such heroes for today's young entrepreneurs - because they have been able to translate their passion into reality.
However, they are outliers, and trying to model your start-up on them is doomed to fail. Passion is definitely not sufficient for start-up success - and may not even be necessary. In fact, it can backfire because the founder is so convinced that his vision is the only right one that he refuses to listen to reason. He is not willing to accept advice from anyone else. He becomes a bit monomaniacal, and this is one of the reasons why start-ups fail.
While being passionate is fine, you need to marry it to calm reason if you want to create a successful company.
It's a sad fact of life that the vast majority of start-ups are doomed to fail.
If you stop to think about it, this is quite surprising. After all, entrepreneurs who choose to found a start-up are usually bright, confident, and willing to take on risks. Even though they know that the start-up mortality rate is so high, they are happy to challenge the existing players in the market, because they feel they can do a better job than the incumbents. They're well-informed and expert, and the very fact that they've been able to raise money from funders means they are charismatic and can do a good job convincing mature investors that they have a dream which is worth backing. Also, one would expect that the combination of an accomplished, ambitious hard-working founder who has considerable domain expertise, along with seasoned investors with deep pockets should make for a winning combination!
After all, very few people are capable of tacking the multiple challenges which starting your own company engenders. These founders have kick-started their company from scratch, which means they've proven that they have abilities which most of their colleagues lack, which is no mean feat in itself. Then why do they fumble?
While failed founders are happy to trot out the same old excuses, I feel it's usually not because of external market circumstances; or because they're technically incompetent; or because they ran out of money. I think the truth is that it's usually an ego issue, which means that their immaturity comes in the way of their success.
Many entrepreneurs think of themselves as being supermen. They believe they should be able to handle all their problems by themselves, which is why they're often not willing to ask for advice until it's too late. For example, they think of their investors as clueless moneybags, who only understand cashflow and financial statement. They don't have a very high opinion sometimes of their employees because they think as CEOs they're in control, in charge of everything else. They're not willing to delegate. They often end up micromanaging as a result of which they become the biggest bottleneck in the progress of the company. This is why they either stall or fail.
This is a huge tragedy, and it breaks my heart when you can see that it's the founder's immaturity which is causing him to shoot himself in his own foot. You would think this should be such an easy problem to solve. All you have to do is point out the deficiencies and he'd be able to fix them. Of course, it's very hard for a person to identify their own faults. The very fact that they're emotionally immature means they don't have enough self-awareness and don't even realize the harm which they're doing themselves by being blissfully unaware of what's happening. They refuse to confront reality until it's too late. Then they go around scrambling trying to raise more funds, or a bridge around by which time they've burned so many bridges that no one is willing to back them anymore. Then their entire house of cards comes tumbling down which is so sad.
I don't really think there's a very easy solution for this except for deciding only to back founders who've proven that they have emotional maturity. This is not easy to gauge. I think a founder who is experienced, who's seen some of life's ups and downs is much more likely to be emotionally resilient, and willing to reach out for help when he finds that he's floundering and does not think it's below his dignity to ask.
Like everyone else, I enjoy attending conferences. They're a chance to get out of the office, take a break from regular work, and meet lots of exciting like-minded people. At start-up conferences, you hang out with founders and investors and swap war stories. If you are an entrepreneur, you can let your hair down and complain about how hostile the funding environment is, and how unsupportive investors are. If you are a funder, you can gripe about the immaturity of founders, and how unrealistic their expectations about their valuations are. It's great to hang out with people who understand the volatility of a start-up system is, and who can empathise with your ups and downs
Of course, you also attend the lectures and the panel discussions and the debates, and hopefully you learn some stuff during the conference. However, the truth is that the content in these conferences leaves a lot to be desired. Usually, you hear the same old tired stuff, because it's the same old familiar faces who speak on the conference circuit. The truth is that you could find these pearls of wisdom much more efficiently by reading a blog or a book.
This is why you need to ask yourself, "How much value does a conference add to your life? Is it really a good idea to attend? Shouldn't you be spending more time in your office, improving your product and finding customers, so you can actually make money?"
I agree that listening to successful founders at these start-up conferences can inspire you, but unfortunately the motivation is very short-lived.
Please be honest with me and tell me how much you benefited from the last conference you attended? Did it have any lasting impact on the way you run your company? The reality is that while you will be on a high while attending the conference, most of these offer very little tangible outcome. You swap visiting cards and promise to remain in touch, and when you return to work, you send out email invites and LinkedIn invitations. However, most people don't bother to respond and you never hear back from them, and you wonder whether it was really worth all that time and energy you spent.
I think it's a good idea to attend conferences when you are starting off. It's helpful to develop a network of friends, peers, mentors and coaches - people who've been there and done that. However, your return on investment on the second and the third and the fourth conference is going to become progressively less, so that over time, you need to learn to become picky and choosy. Don't forget that your time is your most valuable asset, and you cannot afford to fritter it away at a conference. Even if the attractively produced sales brochure may promise you a whole lot, most of it is froth. There are few insights you will get which will help you increase your revenue.
The biggest value these conferences provide is that they help you to expand your network, for which face-to-face meetings are invaluable. They give you a chance to meet people you would never be able to connect with otherwise. If you are lucky, you may bump into an enthusiastic investor by serendipity, but if you want to increase your chances of success, you cannot afford to rely on chance alone, because everyone forgets whom they met as they get sucked into their daily routine once the conference is over. This is why you need to work hard before the conference to set up these meetings, and this needs a lot of preplanning.
Are you struggling to close deals despite giving impressive product demos? Do you feel like your demos aren't doing justice to your product? Don't worry, you're not alone. Giving product demos is an art, and not everyone is good at it. But with a little effort, you can master the art of giving product demos that sell.
In this article, we will take you through three steps that you must follow and three steps that you must avoid to give a killer demo. We will also discuss three common mistakes that people make during demos and how to rectify them.
Before giving a demo, it's essential to know who you are presenting to. Do some research on the company and the person you are presenting to. Find out their pain points, goals, and how your product can help them achieve their objectives. Knowing your audience will help you tailor your demo to their specific needs and make it more relevant to them.
For example, if you are presenting to a startup founder who is looking to scale their business quickly, focus on how your product can help them achieve that. Highlight features that can help them save time, reduce costs, or increase revenue.
Also read: How to Know Your Audience Before Giving a Demo
Many people make the mistake of focusing too much on the features of their product during demos. While features are essential, what really matters to your audience are the benefits. Benefits are what your audience will get out of using your product.
For example, if you are presenting a project management tool, instead of saying "Our tool has a Gantt chart feature," say "Our tool helps you visualize project timelines and track progress more effectively." Focusing on benefits will help your audience understand how your product can solve their problems.
Also read: Give a Demo That Highlights the Benefits, Not Just Features
Humans are wired to respond to stories. Stories help us understand complex ideas and connect emotionally with the content. Use a story to showcase how your product has helped other companies. Use real-world examples and data to show how your product can solve the problems of your audience.
For example, if you are presenting a social media management tool, tell a story about how one of your clients was struggling to manage multiple social media accounts before they started using your product. Show how your product helped them save time and increase engagement with their audience.
Using industry-specific jargon can make your demo confusing and unappealing. Avoid using technical terms that your audience may not be familiar with. Use simple language that everyone can understand.
For example, instead of saying "Our software uses an algorithm to optimize search engine rankings," say "Our software helps you rank higher on Google."
While it's essential to be confident and enthusiastic during demos, don't be too pushy. Let your audience ask questions and give them time to think about your product. Pushing your product too hard can make your audience uncomfortable and may even turn them off.
During demos, your audience may give you feedback on your product. Don't ignore their feedback or dismiss it as unimportant. Listen carefully to what they have to say and take note of their concerns. Address their feedback and show them how your product can help solve their problems.
Many people make the mistake of not preparing enough for demos. They assume that they can wing it and still give a good demo. But this couldn't be further from the truth. To give a killer demo, you need to prepare thoroughly. Create a demo script and practice it multiple times before the actual presentation. Make sure you know your product inside-out and can answer any questions that your audience may have.
While it's essential to know your competition, don't make the mistake of focusing too much on them during demos. Your audience is interested in your product, not your competition. Focus on showcasing the unique features and benefits of your product that set it apart from the competition.
Following up with your audience after the demo is critical. Many people make the mistake of assuming that their audience will get back to them if they are interested in the product. But the truth is, your audience may get busy with other things and forget about your product.
Send a follow-up email after the demo thanking your audience for their time and providing additional information about your product. Keep the conversation going and answer any additional questions that they may have.
In conclusion, giving product demos that sell is an art that requires practice, preparation, and the right mindset. By following the three steps mentioned above and avoiding the three steps to avoid, you can give a killer demo that impresses your audience and closes deals. And if you make any of the three common mistakes, you now know how to rectify them. So go ahead and give that killer demo!
Key problems facing B2B SAAS companies in 2023:
🔎 Customers are confused and have buyer fatigue
🔎Large swathes of players have entered in the last 3 years propelled by VC funding
🔎 CFOs have stopped spending beyond budget – Limited new sales
🔎 Large investments in the past have not shown ROI causing additional hesitation
Some thoughts on addressing the above:
→ Over time, SAAS companies have started selling commodified parts of the process chain rather than delivering real outcomes for customers⚠️: This will separate the wheat from the chaff in the long term, in my view.
→ Limited differentiation has resulted in ‘Me-too’ products. Playing on 'cost to customer' alone will only get you so far. Across several discussions, not enough time is spent on product positioning and determining the value as understood by the customer
→ Founders need to think about building niche use cases in the last mile to reduce sales friction
→ SAAS companies will have to demonstrate 3 vectors for new sales:
Drive revenue/ reduce costs
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Demonstrate efficiency/ automation
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Provide analytics/ source of insights
If you are a B2B founder addressing any of the above problems with a unique insight, I’d love to have a conversation. Write to me at ds@malpaniventures.com
In the start-up ecosystem, VCs are the cock of the walk. They're at the top of the pecking order because they are the ones with all the money. All investors aspire to become VCs because they are the big boys - the alpha males who have the financial firepower to back unicorns, and become amazingly rich in the process.
VCs are thought of being the super-smart whiz kids, who identify the next Googles and Facebooks of the world. They are wined and dined; and invited to all the start-up conferences to give the keynote speeches. After all, if they are so rich, they must be very bright! Everyone wants to understand their perspective and benefit from their insights. Since they control what going to happen, everyone wants to anticipate their next move.
This is why it's so hard for the ordinary investor to understand why the behaviour of VCs often borders on what seems to be irrational to them. They back companies which are burning cash in order to increase their market share without earning any profits - something which flies in the face of common sense.
It's easy to grab market share by burning cash when you are spending other people's money. They feel the business model for the VC is based on bubblonomics - sacrifice profits for growth, and when you become huge, then sell to a bigger fool.
When people question their rationale, the standard answer is -" This time it is different". The media provides a veneer of respectability to actions which seem to be illogical and short-sighted. When you can spend tons on PR, it's easy to create buzz, so you can fool lots of people a lot of the time by getting them to put lipstick on your favourite pig.
Yet, VCs merrily continue funding loss-making companies - and raising even more money to allow them to continue to grow unprofitably. This is why many observers start doubting their own sanity when they read about these fund raises at stratospheric valuations. What do these VCs see in these companies that they are willing to back them? What are we missing? These guys are rich and smart, and they must see something which you don't.
We need to be empathetic, and understand that VCs are riding a tiger and they can't get off. They operate under lots of constraints, which is why they are often forced to do stuff which makes little sense to an objective outsider.
VCs understand the power law - their returns are going to come from a very small proportion of their companies. The problem is that it is nearly impossible to identify in advance which these companies are going to be. This is why they bet big on potential winners; and encourage them to grow aggressively, even if they haven't honed their business model as yet. They hope is that they will fix it as they progress. Their formula is - Go Public, or Go Broke. They want their companies to achieve escape velocity, even if they blow themselves up in the process of trying. Even if ten of the companies they back go down the tube, the winner will more than make up for this. Seen from this perspective, they are behaving very rationally.
This is why the VCs with deep pockets are forced to chase the few eligible companies who fit into their sweet spot. They are compelled to compete with each other, which is why they get into bidding wars. VCs are competitive, and thanks to group think, they will often go all in and take outsize irrational risks. Once they have backed a company, they can't afford to back off, even if it doesn't seem to be going anywhere. They are forced to speculate on a few big bets, and cannot afford to be left behind, because their reputation is at risk if they lag behind.
The problem arises because every VC wants to raise as much money as he can - not as much as he should. This is why they often end up biting off more than they can chew. After all, the more the money you have, the greater the prestige you command. If you have raised a billion dollars, you are more of an alpha male as compared to someone who has only half a billion dollars. Also, the more you raise, the richer you are, because your management fees are 2% of your AUM. Also, since you need to return the LP's money in 10 years, this is the limit of your time horizon - you need to be able to engineer an exit (liquidity event) in 10 years. And while the rest of the world looks up to VCs with awe, don't forget that they need to answer to their limited partners. They have the duty to provide them with outsize returns if they want to maintain their reputation and raise their next fund.
The problem is that when you raise so much money, the choice of companies you can choose to invest in becomes extremely limited. Thus, if you encounter small companies which are very profitable and are likely to do very well in the future, you don't have the luxury of being able to invest in them, because they're not going to be able to affect the needle as far as your returns go.
10 years may seem a long time, but the day of reckoning does finally arrive. The only way they can perform is by keeping on backing these large companies, no matter how they perform. They need to ensure that they continue becoming larger and larger, until they can hand them off to a bigger fool. This is often another VC firm, because they are happy to help each other out. It's a close knit community, and they will buy each other's lemons to keep the ball in play. As far as the rest of the world goes, the valuations keep on increasing, irrespective of the fact that the business model is completely hollow. Their expectation is that hopefully things will work out in the end.
The Holy Grail is an IPO, but that's becoming increasingly hard, because the average investor is no longer as naïve as they used to be in the past. They're able to look past the smokescreen and figure out that the intrinsic value of the company is poor, no matter how huge the company claims that their market share is. After all, it's easy to buy customers when you offer discounts and cash back schemes, but won't they leave once the easy money runs out?
While it's all very well to boast about how revenue is increasing exponentially, if you need to burn money in order to acquire customers and grow your market share, how is that going to be a sustainable model?
While the last 20 years have been great for VCs, think their business model has had its day. It needs to evolve and adapt, just like all other industries need to. The VC industry is also due for a disruption, because when models don't make any financial sense, they will collapse. Yes, they may take much longer than you expect, because the world is awash with cheap liquidity, and everyone is hungry to find an edge, no matter what the risk.
Lots of Indian entrepreneurs feel that Indian investors are very backward and timid. While they're happy to fund copycat clones, they're not willing to back a courageous solo entrepreneur who has an earth-shattering idea which can change the world. Lots of them compare Indian funders unfavourably with fabled Silicon Valley investors who are known to sign cheques after meeting a clever entrepreneur in a cafe, simply on the basis of an idea sketched on the back of a napkin.
These stories make for interesting reading, but I think they are often the stuff of fairy tales. While it's fine to admire their courage, we also need to understand that this is not a disciplined or systematic way of making investments. While it may work every once in a while, the fact that these stories are the stuff of legend obviously means that the vast majority of the time this is an approach which is doomed to fail.
Part of the problem is that entrepreneurs overvalue the value of their own ideas. They think their ideas are original and unique because they live in their own little bubble. They are consumed by their idea, until they start believing that no one else in the world has ever had such a good idea.
This is obviously not true, because investors are deluged with clever ideas from bright founders all the time. We have learned that an innovative idea is simply not enough - you need to be able to execute it, and this is a hundred times harder in the real world.
Entrepreneurs believe that funders don't give them enough credit for their dreams and their drive. They can't understand why rich investors aren't willing to part with their money to back them. This is why lots of Indian founders believe that Indian investors are stingy and don't have the courage to be able to take outsize bets.
The truth is that when you are spending your own money, you have to be careful about whom you give it to. Just like entrepreneurs feel that investors undervalue their ideas, investors also believe that entrepreneurs treat their money very cavalierly. They worry that because it's the investor's money, they spend it way too casually - easy come, easy go! If it were their personal money, they would be much more frugal. We don't want to kill their dreams, but we do need to keep them grounded.
This is the gap which needs to be bridged. Ideas are important, and so is money! Each of us needs to value what the other brings to the table so that we can co-create something which is more than the sum of our contributions.
Data analytics has become a hot area, and everyone wants to know how they can use machine learning (ML) and artificial intelligence (AI) to make better decisions. We are drowning in data, and want to know how we can make use of it intelligently. How do you transmute Big Data into knowledge and then convert that into actionable insights? This is the promise which data analytics offers.
Data analytics falls into four buckets. We can analyse incoming data, and this is called descriptive analytics. This is fairly straightforward, and you need to create dashboards so it's easier to visualise the trends - after all, real time graphics are worth a thousand words.
You can then apply an intelligence engine to the data, to run diagnostic analytics. These help with correlation which can lead to causation, so you can understand why certain trends occurred in the past.
This then leads on to predictive analytics, which is what we're interested in. How can you extrapolate from the past into the future, so you can follow a path which has a higher probability of leading to success?
Finally, when your model is mature, you can use prescriptive analytics, which actually tell the business owner what to do next. This is the Holy Grail of data analytics, and we are slowly but surely getting there.
Part of the problem is that because big data, ML and AI have become buzzwords, lots of companies which talk about providing insights through data analytics often confuse correlation and causation. Mindless data mining leads to overfitting of data, and this can lead you down the wrong track. This is a big risk when you place too much reliance on the data and stop using your common sense.
Also, they often tell you things which you already knew - stuff which is so obvious that it is of no use because it doesn't changed your decisions or actions. Often, this ends up being pointless academic information which just reconfirms your biases, and this is of no use to the business owner.
The key question every data analytics company needs to answer is - what actionable information are we providing to the business owner which he would otherwise would have overlooked or misinterpreted? How will our insights help him to become more successful? If they can answer this question intelligently, they're far more likely to succeed.
A start-up founder starts with a clean slate, which means he can tackle any problem he selects. Often this is a problem he is very passionate about solving - but he hasn't bothered to find out if anyone will pay for the solution. This is a big issue with techie founders who create a clever product because they're in love with their technology, and then look for someone whose pain point it can solve. However, finding product market fit can be extremely difficult when you put the product first.
It makes more sense to reverse this if you want to be a successful entrepreneur. You need to look for the market's pain points, and identify which problems customers will be happy to pay you for solving for them.
Let's look at the banking and financial services industry for example. It's broken in lots of places which means there are lots of gaps which could be addressed efficiently by a fintech start-up. This is why so many founders are getting into microfinancing or example. This is an area which traditional banks have ignored, and they see this as being virgin territory, which offers them an attractive opportunity.
I think this is short-sighted, because you're competing with banks on their own turf - after all, their core competence is lending money! While it's true that microfinance is of minimal interest to banks today, as the segment grows and starts becoming profitable (thanks to the start-ups which invest in growing this market), they will start competing for their customers in this space. Because the bank's cost of raising funds is much less than that of start-ups, the entrepreneurs will find themselves at a disadvantage, which means their terminal value after 10 years is likely to be poor.
Others take pride that they can use technology to disburse loans in a few minutes. I think this is a great marketing gimmick, but am not sure what difference this makes in real life. Instant gratification is hardly a desirable goal in financial affairs, and can lead to consumers taking loans to indugle in impulsive spending, which they then find hard to repay. Also, technology is becoming a commodity, and while a start-up can implement much faster than an established player, it won't take much time for the banks to catch up, which means this is not really a defensible competitive moat.
This is why it's far better to find a problem for which banks will be willing to pay - something which causes pain to their customers, but is not part of their core competence. A good example of a bank's customer's pain points would their customer onboarding process - for example, when someone applies for a loan. Banks need to get them to fill in a KYC because this is a regulatory requirement, but this can be quite a time-consuming painful exercise which no one likes doing. It's a cost for the bank, which they are forced to bear.
Since the KYC is never going to be part of a bank's core competence, they have to outsource it so someone. If a clever start-up finds a technology-based solution which allows them to do the KYC more efficiently, quickly and less expensively as compared to the traditional process, lots of banks who will be happy to pay them for their solution.
So does this mean you shouldn't dream big? No - it just means that you need to be a realist, and understand that you do need to generate revenue to make your dreams come true! If your solution is one which no one is willing to pay for, then you need to ask yourself - Are you addressing a problem which needs a solution in the first place? Or is it just a pet hobby horse you are riding? Once you have enough money in the bank, you then have the luxury to be able to follow your heart's desires, but till then you need to obey the market's dictates!
Raising funds from an investor is a major burden for any start-up founder. When you finally do encounter an investor who says, "Yes," and is willing to sign a check, that's a huge hurdle which you've crossed, and you feel like celebrating. In fact, you should celebrate, but remember the yes is just the beginning of a long series of steps which you now need to take in order to make sure that the transaction goes through smoothly.
It's not that the investor will change his mind - it's just that now there's a lot of additional responsibility on you because you're taking someone else's money in order to run your company. Your answerability has increased enormously, and you need to accept this.
Funding is a major milestone for your company, and gives you a chance to grow. It's also a great opportunity to get your act in order. When you are bootstrapped, you don't bother too much about legal niceties or technical minutiae because you're doing things by the seat of your pants, and have more important things to think about.
However, now that someone is willing to fund you, you need to make sure that your governance is in place. You need to use the services of an accountant and a lawyer to make sure your paperwork is in order and your agreements are water-tight.
I know this is not stuff which most entrepreneurs enjoy doing. A lot of them think of it as a chore - after all, who wants to waste time worrying about paperwork when you are busy building a great company?
This is the wrong attitude. Once you've taken money from someone, you now have a fiduciary responsibility to manage that money properly. You do need to report on a regular basis what you're doing with it, and how you're spending it.
Communication with your investor is extremely important, so you need to set up systems and processes to make sure that your company grows and scales. This is now no longer just a hobby you are pursuing. Running a start-up is a full time job, and you need to dot all the "i"s and cross all the "t"s if you want to be successful. It may not be as much fun as tinkering in the lab or selling to customers, but it's an equally key ingredient, and you cannot neglect this area.
Meetings with investors are essential for entrepreneurs because they allow them to exhibit their progress, discuss future goals, and perhaps gain further money. When meeting with an existing investor, it is critical to approach the subject strategically and intelligently in order to achieve a fruitful and successful meeting.
At Malpani Ventures, we prefer founders who are honest about their present situation and learn & improve from every experiment they run. Our agenda as an investor is to primarily piggy-back on a founder's learnings and cross-pollinate them across our portfolio to help our founders grow
Let's say you are the founder of a startup that has already secured funding from an investor, and you have scheduled a meeting with them to discuss progress and future plans. Here's how you can go about doing so:
Set specific goals:
Before the meeting, take some time to think about what you want to accomplish. Do you need feedback on your most recent product development? Do you want to talk about marketing plans for your upcoming launch? Or do you need advice on how to grow your team? Knowing your goals will assist you in preparing for the talk and making the most of your time with the investor.
Prepare a succinct agenda:
Once you've determined your objectives, create a concise agenda that covers all of the issues you want to cover. This could include an update on your company's growth figures, a look at your most recent product demo, or a talk on how to optimise your sales funnel. Share the agenda ahead of time with the investor so they can arrive prepared and contribute helpful views.
Highlight your progress and accomplishments:
Take time during the meeting to highlight your accomplishments and successes since the last time you met with the investor. Metrics like as user acquisition, revenue growth, or new collaborations may be included. Share any success stories or customer testimonials to demonstrate the influence of your organisation. This will help to establish trust and confidence with the investor and demonstrate that you are making progress toward your objectives.
Brainstorm challenges and opportunities:
Be honest about challenges and areas of opportunity for your business. This could include anything from technical hurdles to market competition. Don't be afraid to ask for feedback or guidance on how to overcome them. Be open to constructive criticism and take the opportunity to learn from the investor's experience. This will demonstrate your commitment to growth and help build a stronger relationship with the investor.
Next actions should be discussed:
Discuss next steps and create clear expectations for follow-up at the end of the meeting. If you need more money, talk about the method and schedule for getting it. If you're seeking for direction, talk about the next steps for incorporating the investor's input. Schedule a follow-up meeting to continue the discussion and track progress.
Set a cadence for future discussions:
Following the meeting, send a follow-up email thanking the investor for their time and highlighting the major points. This will help to strengthen the bond and keep the conversation going. Ensure that any action items or next steps addressed at the meeting are followed up on.
Following these steps will allow you to plan a productive meeting with your existing investor while keeping the conversation focused on reaching your business goals. Keep in mind that investors want to see progress and growth, so be open and proactive in your communication. With a well-planned meeting, you'll be able to build a stronger partnership with your investor and position your company for success.
There are lots of articles which advise entrepreneurs as to what they need to do in order to impress investors, so that they get funded. There are guidelines on how to seek introductions to VCs; how to prepare their pitch; how to polish their business plan; and how to answer objections and not lose hope. There are plenty of blog posts, online courses and books which describe this stuff, a lot of which is extremely valuable.
However, the list of what they need to stop doing is much longer. Part of the problem is that because the start-up ecosystem in India is still so immature, lots of founders make very basic mistakes which rub investors the wrong way. This is why many end up saying no even before even giving the entrepreneur a chance to be heard. Sadly, most entrepreneurs don't even realize they're making these mistakes until it's too late.
There are lots of red flags which will signal to the investor that you're immature, and when he encounters these, he's quite likely to turn you down. After all, he needs to filter as many deals as quickly as possible, so that he can focus on the ones which are likely to be valuable. Don't forget that the investor's default response is always no, unless he has a convincing reason to want to say yes. If you make it easy for him to say no, then you're the one who's going to lose out.
A classic example is to ask for an NDA (a non-disclosure agreement) before talking to an investor. This clearly signals that you have no clue about how the start-up game is played, and investors don't want to spend their precious time teaching you the rules. If you really think that your idea is so unique and original that you will not share it with an investor unless he promises to seal his lips, this just shows that you are very naive, and no serious investor will talk to you.
Similarly, when you send an email, please take the time and trouble to send it to a specific person. A Dear Sir / To Whom It May Concern email is very rude, and will not get answered. Have the courtesy to do your homework about the investor before emailing him. Why do you think you are right for him?
Another pet peeve of mine is that most founders do not bother to follow up each phone call and meeting with a thank you note and a summary of the discussion. This is best done within 24 hours, when the investor still remembers you.
Finally, if you do want to get funded, remember that Charlie Munger's reversal rule applies - the best way to get funded is to not make the errors which would cause an investor to refuse to fund you!
It can be quite inspiring to read the success stories of first generation entrepreneurs who've grown their company from scratch, and made millions of dollars by selling it. These are the founders who provide hope for the next generation of entrepreneurs, and everyone wants to emulate their success stories. But we also need to remember that these stories generate other feelings as well.
For one, there is the feeling of jealousy amongst other founders who wonder why they're having such hard time raising money, and why they can't seem to get any traction.
Another feeling is that of envy. This can be especially acute amongst the colleagues and classmates of the founder who has hit the jackpot. They know that they have worked as hard as he did, and are brighter than him - and they are left to wonder why life is being so unkind to them, and why they've been so unlucky.
Some classmates feel a twinge of regret, "Perhaps if I had taken the risk and ventured out on my own, I would have been in the same position, as compared to being stuck in my current dead-end job."
When the entrepreneur strikes it rich overseas, the founders who chose to stay on in India may feel frustrated and angry that they are having such a hard time in running their company and raising money. When their friends who ventured overseas in search of green pastures cash out, they feel they're being penalized for being patriotic and deciding not to immigrate.
It is hard to deal with these feelings. It's not easy to see someone else's success without feeling a tinge of ache and envy and heartburn - after all, we're all human!
Hopefully, after going through all these, your final emotion will be one hope - after all, if he can do it, then so can I!
Most founders are very excited when they successfully raise their first round of funding. They're very optimistic that they will be able to meet all their Excel projections now that they can start implementing their business plans. They are confident they will be able to get traction, and raise a Series A in a few months at a much better valuation.
In reality, this usually doesn't happen, because most founders underestimate the complexity and the difficulty of running a start-up. Timelines in the real world are much longer than they anticipated, and everything's a lot more expensive and complex than they thought it would be.
This is why they start running out of money before they have met their projected milestones. When they realise that their bank balance is dangerously low, they start scrambling to raise what is euphemistically called a "Pre-Series A" or a "Bridge Round."
This can be hard to do; you're not in a very strong position to negotiation effectively when you have no money in the bank. However, you think your valuation should be far higher than it was during the seed round, because you have accomplished some of your milestones and been able to partially prove that your business model works. Because you have made some progress, you feel that you deserve a higher valuation. You want investors to give you credit for your accomplishments, and give you more money.
This is very naive. The reality is that this is a market, which means the right price is a balance between supply and demand. When you're running out of money, your ability to negotiate is markedly impaired. This can create tension blood because founders feel that investors are taking unfair advantage of their helplessness.
However, from the funder's point of view, you're the one who created the projections; you're the one who asked for a certain valuation which was given to you; and you're the one who's failed to deliver on your promises. Therefore, you should be penalized for not being able to implement successfully. The only way to do this is to reduce your valuation so you need to accept a down round. This is hard for most founders to swallow.
It's very hard to know what the right number is for valuing the bridge round is. The reality is that valuing any round - whether it's the seed round, or the Series A, or the bridge round is equally hard. Everything is intangible and nebulous, and there is no metric or formula which you can use. Beauty lies in the eyes of the beholder, and the price depends on gut feel; and your judgment about the capabilities of the founders.
It's hard for existing investors well. You don't want to be seen as greedy and unfair, especially if his heart seems to be in the right place; he is chugging along in the right direction; but has failed to meet his revenue targets because of the external environment.
This is why this scenario can create a lot of bad blood. It sucks up a lot of the founder's energy, who has to scramble in order to raise the next round. When the initial investors are not willing to give him more money, he's going to find it extremely hard to get new investors to give him any.
One solution is to discuss this scenario when funding the seed round and saying, “If you are not able to accomplish the following targets, then we give you more money only if you are willing to accept a reduced valuation." A clawback provision could also be included in the agreement. The chance for possible conflict further down the road is reduced because the founders have agreed upfront that this is a scenario they're comfortable with.
Making sure that the founder's and the funder's interests remain aligned is extremely complicated when things aren't going well. What do you think is a fair way of dealing with this?
Actions have consequences, and if you cannot meet the goals which you set for yourself when raising funds, then you should be willing to accept the fact that you will pay a price for this. How steep the price will be will depend upon many factors, including how good the chemistry between you and your investors has been so far. Have you been open and transparent with them? Do they trust you? Are they convinced that you have put in your best efforts?
Most investors will have an anchoring bias, and will use the valuation you accepted when raising your seed round as their benchmark. They will want to reduce the premoney valuation, because you have failed to deliver as promised. This is what causes the tension and friction, because while you may feel that you have made progress, they feel that you have failed to live up to your promises. As a founder, you have to be flexible - when you desperately need oxygen, you cannot afford to be picky and choosy. Otherwise, you may find that the bridge you need to cross is too far off!
One way in which angels can overcome their bias is to treat the request for additional funding as a completely new investment opportunity. If you hadn't invested earlier, would you invest in the company at this stage? Start with a clean slate. If you believe that even though the founder could not generate the projected revenue, if he has run experiments successfully which demonstrate that he has improved his product- market fit, then you should be willing to be more forgiving, and continue backing him. However, if you feel that he is not reliable, then it's best to cut your losses, and look for other investment opportunities.
Every start-up is an experiment, and since the future is uncertain, it's never clear which path they should take. Start-ups are agile and nimble, and they have lots of opportunities, because they are starting with a clean slate. While this can be very exciting, this also means that the danger is that they can get lost because they get tempted to go down many rabbit holes.
This creates tension. The founder wants to do lots of different things, because he dreams big; while the investor wants to make sure that the entrepreneur doesn't run out of money in the pursuit of his dreams. This is why they often seem to be at cross-purposes.
It's important that they use the bifocal lens framework which aligns their interests, so they can dream big, but start small. It's helpful to think of this as a two step process. Initially, you use a divergent model, where you brainstorm and use lots of Blue Ocean thinking to come up with all the possible options you can explore. Then, you need to use convergent thinking, where you focus on what one thing you should be doing extremely well. The magic sauce is learning what to say no to.
This is something which entrepreneurs aren't very good at. It can be heartbreaking to be aware that they have a great opportunity right under their nose, but they do not have the resources, the time, or the bandwidth to be able to explore them in the present. However, that's the nature of the beast, and founders need to understand that given their constraints, they can't possibly be doing everything, because this leads to disaster.
It's important to shoot stuff down. A lot of it you can eliminate straight away, because it's either irrelevant to your core business; it's tangential to your goal; or there are too many other people doing it. It's very helpful to have someone else across the table who will tell you what's wrong with some of your ideas. This is why investors will deliberately play devil's advocate, and mature entrepreneurs understand the value an investor brings when he chooses to disagree with them. It's not that he's trying to be difficult - he's ultimately doing it to improve the chances of success for the company. The tension arises because he has a long term perspective, as compared to the founder's short term view of chasing the newest shiny object.
This bifocal perspective can create success, provided you're both aligned. I always remind my start-ups that they need to focus on cashflow and profitability, so that they are no longer dependent on the whims and fancies of the investor, and don't have to waste valuable time raising the next round of funding. This involves getting their hands dirty and doing the daily drudge work. It's true that the daily grind which is boring, but it can actually be very exhilarating to reach the milestone of cash flow profitability. Once you achieve this state, you no longer need to depend on your investor's generosity for further funding. The trouble is that when times are good, your investor will promise you the earth and the moon. However, when you can't deliver and things go sour (often for reasons beyond your control and despite your best efforts), he may turn around and say, sorry I'm not giving you any more money. You're then completely at his mercy, and this is never a good situation to be in. As an entrepreneur, you need to understand that your ability to experiment is directly proportionate to how much money you have in the bank. The more the money you have (especially customer generated revenue), the greater your flexibility to bend lots of rules. This buffer will give you a lot more breathing space and the courage to fail as well.
The truth is that investors respect entrepreneurs who've generated revenue from their customers. This is true even if they goad you to pursue market share and growth at the expense of profitability.
If you want to make sure that you're coming from a position of strength, make sure that you become cashflow positive first. Yes, there will be opportunities which you may have to pass on, but don't worry - if you are willing to be patient, new ones will appear as you evolve. This way you're never going to be starving for oxygen because you don't have enough money.
So what are the right paths to explore? Because this depends on hundreds of variables, the answer is going to be unique for each company. However, investors don't have the right answers either! We really can't tell you what you should or shouldn't do - we can only ask you intelligent questions, so that you can find the answers for yourself. If you realize the critical importance of cashflow, you will be able to set your priorities intelligently, so that you will be able to achieve both your short term goals as well as your long term dreams.